ASIC's draft rules for share trading shine a spotlight on 'dark pools'

The Australian Securities and Investments Commission yesterday released new draft market supervision rules to cover the introduction of competition to the Australian Securities Exchange, high-frequency trading and dark pools.

But it has not dealt with issues raised by Singapore Exchange's takeover bid for ASX, which is yet to be approved by regulators.

Dark pools make it possible for institutions to make trades without revealing their identity, or even the fact that the transaction has happened, but ASIC worries that their increasing popularity may eventually lower the quality of price information in the regular sharemarket.

"There's a very active debate about where those tipping points might be," said ASIC Commissioner Shane Tregillis.

To reduce the risks, dark pools should only be able to accept orders worth more than $20,000, ASIC said in a consultation paper.

Dark pool operators would also be required to make regular reports to ASIC detailing the nature and volume of their trades, ASIC said.

ASIC has also raised concerns about the rise of high-speed computerised trading, blamed for the "flash crash" that rocked US markets on May 6 last year.

The watchdog is keen to avoid the loss of confidence in US markets caused by investors seeing stocks traded at meaningless prices.

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